LPD study unveils similarities, differences among Life Expectancy Underwriters

A study just released by Life Policy Dynamics (LPD) revealed some significant differences among Life Expectancy Underwriters, as well as some similarities. According to the LPD analysis: "Fasano consistently provided the longest LEs overall, and EMSI appears to have consistently been the shortest among the five LE providers. AVS, 21^st Services and ISC are between the two, exhibiting almost identical changes in slope with each other. It is interesting to note that the AVS and 21^st LEs are now closer than they were last year, after both LE providers exercised changes in their underwriting methodology."

“Otherwise, investors could be hurt by a system that appears biased towards using shorter LEs, regardless of the facts.”

Mike Fasano, President of Fasano Associates, said that the results were consistent with what he has seen in the market. Said Fasano: "Unfortunately, many in the market are trying to sweep our differences under the rug in an attempt to lure new capital into the market. The fact is, notwithstanding the significant LE extensions made by some of the other underwriters in fall of 2008, there are still large differences among medical underwriters. The analytics have been clouded by the inability of the underwriters thus far to agree on such fundamental issues as whether to measure historic Actual to Expected accuracy based on the actual life expectancy estimates given to our clients or based on adjusted or restated estimates that are presumably based on current methodologies." Fasano's firm has reported three consecutive analyses performed by independent actuarial firms that concluded an overall Actual to Expected accuracy of 96%, based on actual estimates. Added Fasano: "We think that it is easier to validate expected future performance when you start with an analysis of your actual historic performance and then estimate the impact of any recent changes to methodology. Analyses based on adjusted or restated life expectancy estimates are more difficult to validate and inevitably seem to generate rosy results. The LPD analysis demonstrates that Fasano, on average, is more than 15% longer than the other underwriters, yet I see Actual to Expected ratios from other underwriters of close to 100%. The numbers just don't add up. We can't all be close to 100% accuracy when our LE estimates are so far apart."

Fasano concluded that investors need to dig into the Actual to Expected analyses of the underwriters and come to their own conclusions about who is most accurate. Said Fasano: "Otherwise, investors could be hurt by a system that appears biased towards using shorter LEs, regardless of the facts."